JB Part II: Can Craft Still Go National?

Craft Business Daily:

Continued from last week’s predictions from First Beverage Group VP of Craft Services J.B. Shireman: Can craft keep demanding the same multiples, and taking individual breweries national? He don’t think so.

CRAFT SALES AND VALUATION BUBBLES. Why have there been so few sales? “Through the sell-side investment banking we do at First Beverage Group, I’ve met a lot of craft brewers around the country, and I have met very few, almost none, that are in this purely for the money,” said J.B. For those who will sell, he thinks this age of all-time highs is toward the end. After one or two more major acquisitions at super high multiples, he feels “values could come down a fair bit.”

The other significant drag on value according to J.B. is the lack of wholesaler alignment between the seller and the acquirer. And, in the case of very strong franchise laws, it may leave little room for some of the more profitable synergies available. “This unique set of laws is adding negative value to some businesses that these people spent their whole lives building and the businesses themselves are very healthy. It is simply not right,” he believes.

We had to ask about his take on his alma mater’s novel solution to succession – New Belgium’s 100% ESOP deal. “I think Kim [Jordan] has always been very concerned about legacy for her coworkers, and for New Belgium, this was a beautiful solution,” said J.B. “But I do wonder how many more people will get on the ESOP bandwagon.” A partial ESOP can be a great way to take out minority investors while retaining control of your company. But in the event of a full or highly-leveraged ESOP “the revenue source still has to fund the ESOP debt, most likely a secondary note to one or more founders and still have cash to invest in new capacity, while aggressively funding sales and marketing increases and that’s a lot of masters to serve financially when you want to continue to grow share value.” Meanwhile, there are lots more market synergies in a scenario with a strategic buyer and a craf t brewer with room to grow.

ROOM FOR CRAFT TO GO NATIONAL? That said — there might be less of a place for more national craft brands in this age of uberlocal, per J.B. (Does any of this stuff strike you as opposite of what many craft are doing? Good, you get it.) He recalls an interview he did with Ken Grossman years ago. “He really felt like the days of starting a brewery, having the consumers pick and define a flagship and rallying your portfolio around this flagship, and the national footprint, are over. It would be very hard to do these days, very expensive. Just being relevant to so many different people in so many different types of geographies at a time when you can’t possibly outlocal the local guy. We’re in a fundamentally different growth model and industry than we were even 5 years ago and I believe the pressures that come with it are just ramping up.”